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Charity investors must keep calm, warn fund managers

Finance | Gareth Jones | 15 Aug 2011

Charity investors should not make any knee-jerk reactions to recent market volatility, fund managers have advised.

Speaking to civilsociety.co.uk, John Kelly, head of client investment at CCLA, said his clients have not been panicking, which is sensible as equities should still provide value over the long-term.

He said that recent events have not been a justification for the market turmoil, and could be partially put down to a low volume of trading over the summer period.

“When the cat’s away, the traders are getting up to mischief, but that shouldn’t be a distraction against anyone thinking about the long-term.
 
“UK equity market yields of 3.7 per cent are ridiculously good value at these levels, companies have got powerful balance sheets, dividends are growing again, profit growth is going to be positive this year and next, half the world economy isn’t impacted by the debt crisis, and the Chinese economy is growing by 8 per cent or so.”

Meanwhile, Kate Rogers, client director at Schroders, said some charities are concerned that inflation is causing them to lose out on their cash investments, but added that trustees should be careful about upping the risk-level of their portfolios.

“I think the difficult decision at the moment is how much you risk and how much you keep in cash even though the rates are terribly low.

“We would still say, particularly at the moment when markets are volatile, that it should be long-term money for equities, not a short-term trade.

“You need a three-to-five-year time-horizon to be investing in these volatile asset classes.”

“Avoid bonds and UK equities”

Kelly adds that the asset classes charities should be wary of are government bonds, which are in a “spectacular bubble” at the moment, and UK equity.

“This year the biggest change has been to increase significantly the overseas element of our equity portfolio, and that reflects mainly the view that the path the poor old UK is going to have to climb up is steeper and rockier even that we thought a year ago.”

Rogers concludes that markets will be turbulent for some time yet. “It’s not just about fundamentals, it’s not just about valuations, it’s politics.

“Equity analysts are having to turn into political analysts. A lot is being decided behind closed doors, whether it be eurozone political wrangling or UK political wrangling over deficit cuts.

“That’s the difficult thing, and what markets hate most is uncertainty.”

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Who's Who: Kate Rogers | John Kelly